May 20, 2010

SETTING OUR OWN HOUSE IN ORDER:

Over the past decade, the thinking has been much less clear for conservatives. Being "pro-market" has been fundamentally confused with "pro-business." Conservatives who came to Congress to defend and promote free enterprise have often been led to believe that pathway lies in bolstering established firms as they navigate the maze of government regulations and taxes. These instincts are correct, but the implementation is often flawed. All too often, the results of these efforts have been to exacerbate crony capitalism - erecting barriers to entry against potential competitors to firms that are currently on top.

For their part, companies seeking such protection have a right to pursue their narrow self-interest; but when these actions involve reducing open competition and transparency for short term gain, they do so to the detriment of the very free enterprise system that made their success possible.

Republicans, who profess their zeal for democratic capitalism as the greatest source of human flourishing, all too often have aided the "kings of industry" in pulling the drawbridge up after they've taken the castle. Conservatives must recover the fundamentals of what is needed to defend the free enterprise system. We can begin by rejecting the current financial regulatory overhaul moving through Congress, and by offering alternatives that apply the essential principles that form a true free enterprise system. [...]

There is no shortage of innovative alternatives to the heavy-handed government approach making its way through Congress - alternatives that make the distinction between "pro-market" and "pro-business." Although a bold departure from the status quo, a proposal put forth by Boston University economist Laurence Kotlikoff calls for banks to stick to their fundamental purpose of financial intermediation rather than taking on the excessive risks with no strings attached that have lead to taxpayer-funded bailouts. Real reform must decouple America's economic well-being from the fate of a select few financial firms.

Another approach, one that works within the current financial framework, has been offered by Oliver Hart of Harvard University and Luigi Zingales of the University of Chicago. Their proposal addresses the "too-big-to-fail" question through the use of a market-based trigger that tells firms when to beef up capital. This approach is aimed to better balance "the need to curb reckless risk-taking...while making sure not to unduly constrain economic activity, investment and growth."